M M A A R R C C RESIDENTIAL STATUS

M M A A R R C C CONTENTS  Importance of Residential Status  Incidence of Tax  Determination of Residential Status 1) Section 6(1) – Individual 2) Section 6(2) – HUF/Firm/AOP 3) Section 6(3) – Company  Income tax for NRI  FAQ’s for RBNOR

M M A A R R C C IMPORTANCE The determination of Residential Status of a person is very important for the purpose of levy of income tax, as income tax is levied based on the residential status of taxpayer. It can be classified into two categories.

M M A A R R C C INCIDENCE OF TAX ParticularsOrdinary Resident Resident But Not Ordinary Non-Resident Received – India Accrue – India or Elsewhere Yes Accrue – India Received – India or Elsewhere Yes (From Business Controlled from India) Accrue – Outside India Received – Outside India Yes No ( From any Other source ) Accrue – Outside India Received – Outside India YesNo Accrue - Outside India Received - Outside India Remitted – To India During P/Y YesNo

M M A A R R C C DETERMINATION OF RESIDENTIAL STATUS Section 6(1):- Individual  It is determined on the basis of stay in India and is computed separately for each year. If satisfies any one condition, then he is said to be an resident in India (If none is followed than he is said to be an Non-Resident) 1) Stay in India for 182 days or more in that F.Y. or 2) Stay for 60 days or more in that F.Y and 365 days or more during 4 Yeas immediately preceding the P.Y. Exceptions:- 1) Citizen-Leaves India-for Employment purpose 2) Citizen/Person of Indian Origin -Lives outside India-visits India

M M A A R R C C What is not considered as Employment outside india Leaving India on Business Travel Leaving India to study abroad and incidentally works outside india Deputation outside india to associated company but employment contract continues with Indian company What is considered as leaving India for Employment Purpose For Taking up New Employment Indian company sending on secondment to foreign co.

M M A A R R C C SECTION 6(6)-ORDINARY RESIDENT ?  The person is ordinary resident if he satisfies the following conditions:- 1) he is a resident for at least 2 years out of 10 immediate preceding P.Ys AND 2) He has stayed in India for at least 730 days in 7 preceding P.Ys.

M M A A R R C C CASE 1 1) An Assessee is salaried employee and he is resident during P.Y ) He is in USA From April to July 25th 2014 and he earns foreign salary on which TDS is deducted and Form W-2 is issued to Assessee. 3) From July 25th 2014 to 31 st March, He earns Indian salary for which form 16 is issued to assessee. As per ARTICLE 25 (2)(a) of DTAA between India and USA. 2. (a) Where a resident of India derives income which, in accordance with the provisions of this Convention, may be taxed in the United States, India shall allow as a deduction from the tax on the income of that resident an amount equal to the income-tax paid in the United States, whether directly or by deduction. Such deduction shall not, however, exceed that part of the income-tax (as computed before the deduction is given) which is attributable to the income which may be taxed in the United States. First the tax as per Indian Income tax rates should be calculated and after the same credit of TDS deducted in US should be given. The tax and income of US shall be converted using the exchange rate as on 31st March.

M M A A R R C C CASE 2  USA-Visited India to see his grandparents-never visited India in Past- stay in India is 5 months-resident in India ?  If an Indian citizen/Person of Indian Origin who comes on a visit to India during the previous year then he will be considered as resident if his stay in india is 182 days or more.

M M A A R R C C SECTION 6(2):- HUF/FIRM/AOP 1)HUF-The residential status of karta is considered for determining whether the HUF is “Ordinary Resident”

M M A A R R C C CASE 3  Head office in Hong Kong-managed by Mr. Y-residential status in following situations:- 1) Control and Mgmt wholly outside india. 2) Control and Mgmt partly in india. 3) Firstly to see the status of HUF –then see status of Y (Additional condition

M M A A R R C C SECTION 6(3)- COMPANY Foreign Co. C & M Wholly In India Resident C & M Partly or Wholly Outside India Non- Resident Indian Co. Always Resident

M M A A R R C C CASE 4  Mr. X is an Indian resident. He earns Rs. 10,000 as interest income from UK. We assume that the rate of Income-tax in India is 30% and in UK also it is 30%. ParticularsAmount Mr. X’s Interest income in UK10000 UK will deduct source under Article 12 of the (1500) Net Receipt In India 8500 Indian tax on total income3000 Less: Credit for UK tax1500 Balance tax payable in India 1500

M M A A R R C C INCOME TAX FILING OF NRI Tie-breaker rule  Most treaties provide that when an individual is a resident under the internal laws of both countries, residence will be assigned to one country based on a series of conditions, also known as the tie breaking rules. 1) Permanent home 1) Permanent home 2) Center of vital interest 2) Center of vital interest 3) Habitual abode 3) Habitual abode 4) Citizenship 4) Citizenship

M M A A R R C C WHEN?  When taxable income in india during year was above the basic exemption limit.  There is STCG/LTCG from sale of any Investment or assets.  If needed to claim tax refund Exceptions Exceptions (115G) 1) If TDS is already deducted on any income but if TDS is deducted more then file it to claim refund 2)If it is tax free income like sale of equity shares or equity mutual fund

M M A A R R C C FAQ’S FOR RBNOR  When either or both conditions under section 6(6) is not satisfied then it is said to be RBNOR.  Once the status of RBNOR is determined then it is allowed to keep that status for up to 3 years.  The taxability of RBNOR will be equivalent to NR for 3 years.  The income which is earned is india will only will be taxable.  As soon as status changes from RBNOR to Resident, Then all the foreign income will be taxable.

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